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One of the central objectives of a Budget should be social justice, and on this occasion, I think that on balance politics prevailed over social justice considerations. As many have said, the combination of the 2p income tax cut and the elimination of the 10p tax band will, of course, transfer income from lower earners to middle earners. The alignment of income tax and national insurance, so that there are two tax bands and two thresholds, may simplify the tax system, but
only at the expense of undermining its progressiveness. The 2p cut in corporation tax reduces company taxation to its lowest ebb in 60 years, inevitably switching the burden towards more regressive personal taxes.
The continuing failure to end the scandal of hugely lucrative tax loopholes for the very rich, such as non-domiciled tax status and the short-term taper relief for private equity investors, simply enhances the trend towards inequality, which is far too embedded in the system. All of that may well have shot several Tory foxes—it was probably very successful in doing so—but it does not promote social justice to any significant degree.
Adam Afriyie: The right hon. Gentleman’s sentiments about social inequality are shared by the Opposition, but does he share my overwhelming concern and alarm that while there was a 2p cut in corporation tax for large businesses, which is to be welcomed if one believes in competition in the tax arena, taxation on smaller businesses was increased by about 16 per cent. in a three-year time frame? Those smaller businesses may be owner-managed, and they may support one or two other members of the family, so it will hit them very badly.
Mr. Meacher: I cannot validate the hon. Gentleman’s figures. All that I would say is that the level of corporate taxation overall is too low. Of course, I understand the competitiveness point, but the level of corporate taxes has reached such a low level that it will inevitably lead to a big increase in every other arena of taxation, so there are likely to be regressive taxes on individuals. However, I agree that within the corporate sector taxes on small businesses should be reduced as far as is reasonable and fair, even at the expense of large companies, which are extremely profitable compared with similar businesses abroad, so they could certainly pay more.
Mr. Meacher: I think this is the last time that I shall give way to the hon. Gentleman.
Chris Huhne: It is kind of the right hon. Gentleman to give way to me a second time. Is he as shocked as I was to discover the calculations over the weekend, which showed that someone needs to earn £18,650 a year before they will receive an income tax cut in the Budget? What the Chancellor has done—and it is the first time ever that a progressive Government have done so—is to take from the bottom end of income distribution to give to the middle. Is the right hon. Gentleman as shocked as I am by that?
Mr. Meacher: I have already referred to that point, and I am not going to add anything further.
Britain is now one of the most unequal countries in the world. The latest official figures show that the rich have made a killing in the past decade, and that inequality rose sharply between 1997 and 2002. It is perfectly true that it has fallen back since then, but it still remains, at least on the latest figures, above its level in 1997. That reflects the fact that although child tax
credit, working tax credit and pensioner benefits, all of which I strongly support, have provided a modest but welcome lift for the poor, the rich have done hugely better. That is the problem. It is not that the poor are poorer; they are not—they are slightly better off—but the rich are hugely better off.
Mr. Newmark: Will the right hon. Gentleman give way?
Mr. Meacher: Yes, so long as it is not about private equity.
Mr. Newmark: I promise it is not about private equity. I strongly support what the right hon. Gentleman said about social justice, but does he share the concern of the Opposition and myself that the tax credit system itself is a fiasco, with only three in five people receiving the right amount of money?
Mr. Meacher: We all know that there have been considerable problems with tax credits. We are perfectly well aware of that—and I know that the Government are striving to overcome those problems—but the principle of tax credits for working families is a very good one. One of the problems is that not every one who is entitled to a tax credit necessarily claims or receives it. The principle is a good one, but I am worried that through the tax system, the Government are effectively supporting employers who pay their lowest-paid employees too little. That is the fundamental cause of the problem.
The top 1 per cent., whom I would call the super-rich, have done a great deal better. Their share of national income fell from 13 per cent. in 1937 to just over 4 per cent. in 1974, but in the Thatcher-Major years it rose rapidly back to almost 11 per cent. in 1997. I submit to the House that we are now returning to the inequality of the 1930s, if not of the Edwardian era. Their share of national wealth has ballooned even more. It shot up from 17 per cent. in 1990 to 23 per cent. in 2002, so fewer than half a million adults—the group that I am talking about—controls nearly a quarter of the entire wealth of the nation, while half the population, over 20 million individuals, have seen their share fall to just 6 per cent. in 2002. I would call that a case of gushing up, rather than trickling down.
I shall give one further example before I turn to what needs to be done. The mega-rich, perhaps the top 0.1 per cent.—one in a thousand—have done best of all. I have been looking at the statistics. Some 75,000 individuals now own almost half the liquid assets in Britain and they are, on average, 66 per cent. richer than they were five years ago. Those at the very top, the richest 1,000 in Britain, have seen their wealth triple from £99 billion to £301 billion since 1997. In the past year alone, the overall wealth of this group soared by 21 per cent. or by more than £50 billion, and the number of billionaires has tripled from 14 to 54. That, I submit, is a degree of inequality that has nothing to do with competitiveness or fair differentials. It simply reflects the capacity to satisfy greed on a very big scale.
Mr. Hands:
The right hon. Gentleman is making a powerful case, but with reference to liquid wealth, does he agree that one of the important reforms that we
could have introduced over the past 10 years but which has not happened is to increase share ownership, which has been incredibly static among individuals over the past 10 years?
Mr. Meacher: I am certainly not opposed to that. The previous Prime Minister of the hon. Gentleman’s party, Lady Thatcher, made a very considerable effort in the 1980s to achieve an extension of share ownership. To a degree, she did, but it stuck at around 9 to 12 per cent. If anything, the concentration of share ownership among the most wealthy has continued since then.
Mr. Meacher: I would like to make progress, if I may.
All this matters for three reasons. First, the corollary to this extreme maldistribution in income and wealth is the persistence of poverty and inequality. It is worth noting—I say this for illustrative rather than practical purposes—that if all the gains made by the top 1 per cent. since 1997 were transferred to the poor, poverty would be abolished overnight. I do not expect that to happen, but it illustrates the point that I am trying to make.
Secondly, such excessive widening of inequality cannot conceivably be justified. Like everyone in the House, I believe in merit, fair rewards and incentives, but this is on a completely different scale. It in no way reflects improvement in business performance. Indeed, we read every week in the paper about rewarding failure, which has become commonplace. Rather, it is self-enrichment on a mega scale.
In 1980 a chief executive of a top company might have earned some 25 times more than the average worker. Today, it is 120 times. Last year the average pay of the FTSE 100 chief executives, including bonuses, share options and so-called fringe benefits, was £2.8 million. I have done a quick sum. That works out at £46,155 a week, which is 550 times more than the state pension and 230 times greater than the minimum wage.
There is a third reason—for me, it is the most profound—why such drastic inequality matters. There is now abundant international data showing that the greater the inequality between the richest and the poorest, the higher the levels of ill health, crime and social breakdown across society. The price of extraordinary material success for a tiny number is social failure and dysfunction within society, which is not a bit surprising. Increased social hierarchy and increasing social inequality significantly raise the stakes on personal worth, and for those who lose out, the feelings of inferiority, resentment and inability to compete inevitably generate antisocial reactions towards the society that demeans them.
There are lessons here for the Government. Some years ago, Peter Mandelson charmingly told us in a remark that I have never forgotten that
“New Labour is relaxed about people getting filthy rich”.
The Chancellor’s ideological commitment to unfettered market forces, neo-liberalism and globalisation has certainly let inequality rip. At the same time—I wish to be entirely fair—the Government have commendably
tried very hard to limit social dysfunction by relentless targeting to deal with inefficiency, misdemeanours, crime, poor performance and inadequate effort. I praise all that, although I sometimes think it a bit excessive. However, it is not perceived that those policies are incompatible, because the pursuit of inequality persistently undermines the Government’s real efforts to improve health and educational outcomes, to cut crime, to improve social mobility, to build sustainable communities and, obviously, to reduce poverty.
There are some other lessons for the Government. The Chancellor’s predilection for giving the market its head to work in its normal way as an engine for generating huge and growing inequalities and for then, very commendably, trying to correct some of the worst excesses at the margin by improving benefits and allowances of some of the neediest groups in the Budget will not work. That strategy is not adequate.
Inequality is now a structural issue—it is a systemic issue, and not simply a matter for tactical adjustment at the periphery from time to time. The problem is that the basic incomes of the poorest are far too low, while the incomes of the rich are largely self-attributed, are not independently assessed and are often unrelated to merit or effort. Furthermore, every trick in the accountant’s book is used in order to eliminate, avoid or evade tax.
I do not want to duck the question of what needs to be done. The state pension, which is now worth no more than one sixth of average earnings, is far too low, and it should be raised to the pension credit level as of right for all, not least in order to avoid means-testing as many as three quarters of pensioners by 2050, which is the current trend. The net cost of that measure would be about £7 billion, although if it were confined to the over-85s, which I would understand, it would be less than £3 billion. That is certainly affordable, when the current surplus in the national insurance fund is around £40 million.
Kelvin Hopkins: I strongly support my right hon. Friend’s remarks, especially about pensions. Does he agree that a more ambitious target for the state pension would be 25 per cent. of average earnings, which was the level in 1980 before Mrs. Thatcher broke the link with earnings? Just getting back to where we were 25 years ago might be a good target.
Mr. Meacher: I like my hon. Friend’s ambition, but I am, as ever, modest. If we could achieve what I have set out, which would result in an increase from £84 a week to £119 a week, I would call it a considerable achievement. However, I agree that that would be only a first step.
Rob Marris (Wolverhampton, South-West) (Lab):
I suggest to my right hon. Friend that it would not be a good idea to raid the national insurance fund, which is to pay for unemployment benefits, the NHS and disability benefits for those injured at work. A much better source of funding would be tax relief on pension contributions, which amounts to about £18 billion a year and which is extremely regressive—half of the relief goes to the top 25 per cent. of earners, and some 10 per cent. goes to the top 2.5 per cent. I cannot recall
the exact figures, but that relief is incredibly regressive, and it consists of £18 billion in forgone tax revenue.
Mr. Meacher: I entirely agree. I am only embarrassed that I did not come up with the idea first, because my hon. Friend is exactly right. We have an extraordinary system that involves a very low state pension and enormous reliefs on pension funding, which are largely limited to those at the top. A simple redistributive transfer makes obvious sense. I shall take on my hon. Friend’s idea and will credit him when I repeat it in future.
Instead of employers being allowed to close down good occupational and final salary schemes, they should be required over time to pay back the £18 billion that they have taken out in past pension holidays. That is affordable, when many companies continue to pay dividends each year which exceed their pension scheme deficits. I shall give one example from the Lane, Clark and Peacock survey: in 2005, Vodafone paid out a dividend of £2.7 billion, which was significantly more than its accounting deficit of £136 million, and 24 companies declared dividends in excess of twice the amount of their pension scheme deficit. Why do the Government not require companies to meet pension fund deficits before dividends on that scale are permitted?
The national minimum wage is too low at £5.35 an hour, which is certainly not a wage that anyone in this House would want to live on. It should be increased straight away to £6 an hour, and soon after that it should be increased again to at least £7 an hour—incidentally, that would be without any risk of higher unemployment from internationally traded goods and services. As for top incomes, which may be of more interest to hon. Members, they need to be justified and not simply appropriated. We should require companies—at least the larger ones—to call a meeting once a year of representatives of all the main grades in the company from the highest to the lowest to open the books, to examine what is left for increasing wages and salaries after all the costs have been met and to allow people to justify their claims, if they can, to all those present. Transparency would not prevent fair or even large differentials, which I am certainly not opposed to if they are justified, but it would make the naked greed of some much harder to carry off at the expense of everyone else.
It is time that the grotesque excesses of greed and inequality—I am glad to hear that this view is shared on both sides of the House, and I hope that the Government share it, too—which now disfigure our society are brought under control. The Prime Minister has regularly defended the super-rich with two arguments: that wealth creation is much more important than wealth distribution; and that wealth at the top harms nobody else. I am afraid that he is wrong on both counts. If Labour—or new Labour—is genuinely for the many not the few, a major reduction in inequality must now be a priority for the rest of this Parliament.
5.59 pm
Chris Huhne (Eastleigh) (LD):
The Secretary of State was a little harsh with the hon. Member for East Surrey (Mr. Ainsworth), because any policy that is
advocated by a Tory Front Bencher and loathed by quite so many of his own Back Benchers cannot be all bad.
I am happy to say that there is a good deal to welcome in this Budget’s environmental measures. I should particularly congratulate the Chancellor and the Secretary of State on the Congo basin initiative. Tackling deforestation will be a key part of a global attack on climate change, because, as we know from the Stern review, it is responsible for 18 per cent. of carbon emissions. It is essential that we develop a policy that works not only in the Congo basin, but in Brazil, Indonesia, Borneo and Papua New Guinea.
I also welcome the competition to develop a full-scale demonstration of carbon capture and storage, which is a vital interim technology. The rise of the climate change levy in line with inflation is overdue, as are the rises in the landfill tax and the aggregates levy. Zero carbon homes are to have no stamp duty levied on them, so let us just hope that house builders are encouraged to build some and that it will prove to be a reassuringly expensive concession.
The Budget’s key importance is that it is the prime statement about the economy in the parliamentary year. The climate change debate is an economic one: it is about how we change our economy and how we undergo a new industrial revolution. There is a big difference between the new industrial revolution that we shall require over the next four decades and those that have occurred, all of which were driven overwhelmingly by the desire to satisfy new consumer needs, whether we are talking about moving from gas light to electric light or from the steam engine to the internal combustion engine. There are advantages in tackling climate change, but this will be the first major technological change that will have to be driven both globally and by policy.
The Government’s record is, unfortunately, disappointing. I look forward to the figures that the Secretary of State has promised us. The published figures in the “Environmental Accounts” show that emissions have increased since 1997, even given the enormous advantage of the electricity generating sector’s movement from coal to gas.
I turn to the spending side of the Budget, where flood defences cuts this year look exceptionally short-sighted, as do biodiversity research cuts at the centres for ecology and hydrology, such as the centre at Wool in Dorset, which have done so much important work in understanding how our natural system—our flora and fauna—will adjust to climate change. Even more ridiculously, there have been cuts in expenditure on the Hadley centre, which is probably the world’s leading research centre on climate change.
On the broader environmental front, I noted that the Secretary of State was proud of the Government’s record on recycling. I should merely add that we started at an extraordinarily low base and that the latest environmental comparisons within the European Union show that our recycling rate remains the third lowest of all member states.
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